Jim Roger's Article on Greenspan

Quote from Jolly Jack:
I have heard previously that the fed was a private co. You obviously believe it , I find it very odd...........how does it all fit together?
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Jolly - I just pasted that excerpt, but I can't say for sure what the real truth is. The Fed website doesn't help much, and the Federal Reserve Act isn't exactly clear, either. The lack of clarity from government sources lends credibilty to the theory though.
 
I was thinking:

Doesn't the fed only have one tool - monetary policy (i.e. interest rates)?

The main goal of the fed since the 80's has been to control inflation. If the money supply got out of control, wouldn't you expect inflation? In any event, they did a great job on the inflation front. They've shot their bullets now with interest rates and are now left with blanks. What's left -> fiscal policy. Tax and Spending by the gov't. If the economy gets better/worse, don't blame the feds, blame your politicians.
 
Quote from def:

I was thinking:

Doesn't the fed only have one tool - monetary policy (i.e. interest rates)?

The main goal of the fed since the 80's has been to control inflation. If the money supply got out of control, wouldn't you expect inflation? In any event, they did a great job on the inflation front. They've shot their bullets now with interest rates and are now left with blanks. What's left -> fiscal policy. Tax and Spending by the gov't. If the economy gets better/worse, don't blame the feds, blame your politicians.
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Is it really so? You say there is no inflation. We may not have the inflation typical of the late 1970's early 1980's, but we DO HAVE inflation. Its just been confined to certain groups. The inflation is there. It just floats around from asset group to another.
 
ofcourse there is inflation (housing for example) but overall it has been kept in check and very reasonable levels.

edit: could it also be argued that housing shot up due to the reduction in the capital gains tax - fiscal policy - during clinton's presidency.
 
Quote from def:

I was thinking:

Doesn't the fed only have one tool - monetary policy (i.e. interest rates)?
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Yes and no. Monetary policy is obviously their domain. The tools that they have at their disposal are:

moral suasion (1996 "irrational exuberance" speech)
Fed funds rates/Discount rates
margin requirements
control of fractional banking system

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AAA,

that was one funny post! :D :D We need more monkeys (rally monkeys that is!)
 
we don't have inflation in finished goods. Another poster mentioned China. Did you know that Mexico is now worried that China is taking jobs away from them as factories are moved/built in China?? Average person makes $40-100 per MONTH. How can any manufacturing firm compete with that.

Main problem here is overcapicity. With all that cheap money in the 90's, many firms built WAY too much. It's great for customers, poor business sense. How can the fed fight that?? Well, they shouldn't have given so much cheap money at that time.

I think all this boils down to two main downfalls of the fed, and other associated economic advisors (ie Rubin). I think Greenspan did eventually start to believe in the high tech miracle. I also think that political pressure, in all areas of the economic and treasury branches forced their hand. Afterall, if you believe that maybe this is a new age, and if there are problems that can be easily solved in the short term by pumping out money, what harm can there be?? I think a chart of the Nasdaq answers that.

Short term gain=long term pain

canuck
 
Most Americans, if they know anything at all about the Federal Reserve,
believe it is an agency of the United States Government.
This article charts the true nature of the "National Bank."

http://heart7.net/mcf/federalreserve.htm


on PPT (Plunge Protection Team) enactment and how it effects the markets in conjusction with the Federal Reserve

...The PPT has enormous power and if it chose to make full use of that power it could certainly push the stock indices considerably higher. The Fed, a member of the PPT, has an unlimited ability to create dollars, so if it really wanted to the Fed could print enough currency tomorrow to buy the entire stock market. (There is, of course, a practical limitation to the Fed's currency-creating ability in that the more dollars it prints the weaker the US$ would become.) ...


http://www.kitco.com/ind/Saville/july052002.html


some older info on PPT/FED from 1997

http://www.washingtonpost.com/wp-srv/business/longterm/blackm/plunge.htm

Josh
 
Quote from jaan:

i'm OT here, but neither radio nor television were products of QM, simply because, initially, they did not use transistors nor anything else related to QM.

in addition, i seem to remember that transistor was invented before the QM-properties of semiconductors were researched, so it would be quite a stretch to call transistor "the first application of QM". but i may be wrong in that account.

- jaan
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I should have said the _transistor_ radio.

The modern day equivalent is the cell phone - some people are even replacing their home phones and just having a cell phone for everything.

I recently heard that 1B people have cell phones - can that be right? That's 1/6 the worlds population?

nitro
 
Quote from darkhorse:


The thing is nitro, the fed already had plenty of wisdom to draw upon. The 90's were a replay of the 20's.

There have been at least half a dozen periods of history where the public has taken an excellent new innovation and gone waaay overboard in terms of irrational valuations. Airplanes, cars, electricity, railroads, bowling stocks, on and on you name it.

The bubble developed in the 20's because a) it was an age of exciting progress, and b) it was a benign inflationary environment that allowed the seeds of excess to be planted.

I am not piling on to Greenspan because of the ugly outcome after the bubble popped. I was saying the same thing five years ago, and Fleckenstein was saying it before that!!!

It's BS to give Greenspan a pass because plenty of individuals did learn from past lessons of history, and Greenspan's OWN WORDS demonstrate that he had a personal knowledge of past history himself.

This is not about kicking an old man when he's down. This is about holding someone accountable for lessons that he learned but ignored. He knew all about the history of excess, he knew all about the history of bubbles developing in benign environments, and he was even speaking up about it in 1996- but then for some reason he decided to shut his mouth and play the game. He decided he would rather hold on to his popularity than stand by the conviction of history, the exact opposite of what a credible and accountable leader would do.

For those who say he didn't have any real power, give me a break. Even now the ability to manipulate the money supply is still gargantuan in terms of power. The entire world was hanging on his every word for years, literally- he had huge amounts of authority simply in the opinions he voiced. At the height of his influence, I wouldn't be surprised if his farts were being analyzed for their economic portents.

And back to the promise of technology: TECHNOLOGY AND VALUATION HAVE NO INTRINSIC CORRELATION.

Ever hear of "profitless prosperity"? This is also a concept that rational people understood long before the bubble, including Greenspan. If a company comes up with a great new innovation, but so do a bunch of other companies at the same time, then the CONSUMER benefits in the form of a great new product, but the lack of pricing power due to competition means that the valuations of the companies do not deserve to rise out of proportion to their profits!!!

Let's say that the top ten pharmaceutical companies all came up with the same cure for cancer at the same time. This would be a great boon to society obviously. But whither the valuations of the pharma companies? Competition would ensure a low price- in fact, the margins on such a wonder drug might not be higher than that of any other drug given a fast enough distribution of the formula.

Now go back and look at the dot com sales sector. It was plain as the nose on anyone's face that a sector with supposed profit margins of a gazillion percent would be drowned in competition before you could shake a stick at it. This is exactly what happened. And it didn't take a genius to see that it was going to happen. It just takes common sense. And I was saying the same thing in 1999 and so were plenty of other people.

Innovation + competition = benefit to society but it does NOT equal a 250+ price to earnings ratio because competition arbs away profits back to normal levels. A company with a great product may well be a lousy investment. So "bubbles" and innovation do not have to go hand in hand. They only do because stupid folks forget the common sense lessons time and time again. But that's why "smart" folks like Greenspan are supposed to keep a rein on things instead of pouring gasoline on the fire.

Greenspan KNEW what he was doing, he KNEW that history counseled a different course of action, but for some reason post 1996 he decided to zip his lip and play puppet. He chose to fall down on the job for reasons of popularity or some other self centered interest. He can't hide behind smoke screens of how hard his job was or how "complex" it was, give me a break, he had demonstrated prior knowledge and understanding that he failed to act on and thusly he shirked his duty to the detriment of the country. This is not kicking a guy when he's down, it's calling someone to task for failing in their responsibilities for a deplorable reason- a desire to preserve their own glory.
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Dark,

Once again, you posit some very convincing arguments. I need to sleep on this one...

nitro
 
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